Supreme Court case ruling could allow employers to set own retirement age

The Supreme Court has rejected an appeal made by an employee at law firm Clarkson Wright and James who was told he had to retire at 65.

The judges upheld the previous decision taken by the Court of Appeal that the business reasons behind the employer’s decision to retire Leslie Seldon did not constitute direct age discrimination.

The reasons Clarkson Wright and James gave for retiring Seldon were: to ensure associates had the chance to become partners after a reasonable time; to facilitate the partnership and workforce planning (with realistic expectations as to when vacancies would arise); and limiting the need to get rid of partners by way of performance management, thus contributing to the supportive culture of the firm.

Rachel Dineley, employment partner and head of the equality discrimination unit at DAC Beachcroft, said: “The long-awaited decision deserves careful consideration, not only from professional service firms and other partnerships, but all employers that need to justify any prospectively age-discriminatory practice.

“When this case first commenced, it was less significant because employers were able to rely on the so-called default retirement age (DRA), which enabled them to require employees to retire at age 65 or more. However, following the abolition of the DRA in 2011, this leading decision is important to all organisations.

“It demonstrates the tricky balancing exercise, which has to be undertaken when meeting important business needs on the one hand, while avoiding undue discrimination on the other.”

Neil Carberry, director for employment and skills policy at the Confederation of British Industry (CBI), added: “This ruling confirms that, at least in principle, employers are able to set their own retirement age. However, this does nothing to fill the vacuum left by the government’s scrapping of the default retirement age.

“If employers want to set a retirement age that is suitable for their workforce, and know for sure whether it is legitimate, they will still have to go through a costly and lengthy legal process. The government cannot continue to pass the buck. Employers need to know how to handle the sensitive issue of retirement, with adequate protection to discuss plans with their staff, and better guidance on when a retirement age is justifiable.”

Guy Lamb, partner in the employment team at DLA Piper:27th April 2012 at 12:08 pm

This decision does not give carte blanche to employers to impose a mandatory retirement age, but it does make it easier for employers to justify the adoption or continuation of mandatory retirement if they consider that that approach is necessary.

Most organisations will be able to identify legitimate aims, which are fulfilled by having mandatory retirement and which relate to either inter-generational fairness or dignity of older workers.

The difficulty, however, remains in demonstrating that the particular age chosen is a proportionate means of achieving those aims, and that they could not be achieved in a non-discriminatory way.

This will be something which employers need to consider carefully in the context of their own workforce and operational circumstances. Despite Seldon, the reality remains that any employer that adopts a policy of mandatory retirement is likely to face tribunal claims over that policy at some point and will have no guarantee of winning.

It is a high-risk strategy and many employers would be better off finding other ways to manage the challenge of an ageing workforce, including workforce planning and better performance management at all levels of the organisation.

The Supreme Court decision in Seldon reinforces the idea that age discrimination is different from other forms of discrimination. The same rule can benefit us at one age, and be against us at another, and this inter-generational fairness can be a legitimate business aim.
Whether a retirement date of 65 was in fact a proportionate means of achieving that aim in Seldon’s case has gone back to the employment tribunal to decide.

However, the Supreme Court has expressed a strong view that a rule can have a legitimate social aim for age discrimination purposes even though the policy benefits the employer’s business. It recognises businesses are not a social service, and even though a rule may be to an employer’s advantage, this does not preclude there being a public interest in achieving the aim.

So, just because an employer benefits from people retiring at a specified age, that does not mean it can’t take advantage of fixed retirement ages where they have the aim of sharing out employment opportunities fairly between the generations.

I doubt the decision will have an immediate, dramatic impact on occupational pension schemes, which already have the ability to set an age at which people become entitled to benefits. But it might open up arguments for how long, or what type of benefits need to be continued if people work beyond their normal retirement age.

For example, it arguably raises the question whether inter-generational fairness justifies stopping DB benefits at normal retirement age if new joiners only have access to DC.

Chris Ball, CEO of The Age and Employment Network (TAEN)27th April 2012 at 12:14 pm

While clearly it is unfortunate that the court has ruled against Seldon, who wished to carry on working, there are a number of positives that can be taken from this case.

Firstly, Seldon will have the chance to present his case to the employment tribunal on the issue of whether his enforced retirement was a proportionate response to the underlying aims the firm was trying to achieve. He may still win.

More generally, through its careful process of unpacking the tests of justification of enforced retirement, the Supreme Court has clarified the issues considerably. To be legitimate, aims must have an underlying social policy purpose rather than constitute anything that smacks of stereotyping.

Moreover, the court has made it clear that, “the gravity of the effect upon the employee discriminated against has to be weighed in assessing the necessity of the particular measure chosen”. Seldon will doubtless take heart from this comment and ensure that the employment tribunal understands the impact on him.

One implication of the decision is that, where employers have sophisticated performance management approaches in place, they will have to adhere to them and apply them fairly to all employees.

This ruling has taken us forward in recognising that stereotypes of the older worker are no longer acceptable.

Employers will need to be very careful when shedding older staff from now on. Employers will have to show that both the underlying aims of forced retirement are legitimate and then go on to show that retirement itself is the only way to achieve these aims. This sounds like quite a tough test and it is right that it should be.

Today’s judgement is a welcome move forward in the fight against age-discrimination.

Richard Smith, employment law expert at Croner:27th April 2012 at 12:16 pm

The case demonstrates that the use of age directly or indirectly will amount to age discrimination unless objectively justified.

Seldon shows that it may be theoretically possible to justify a retirement age; but to do so will not be easy. The justification must be of measures that were appropriate, necessary and proportionate and, if there are non-discriminatory measures that would achieve the same outcome, this will undermine justification.

For example, in Seldon, the justification for a compulsory retirement of maintaining dignity by avoiding performance management of older workers may not succeed if there are alternative means, such as fair procedures to achieve the same goal; or if there is no evidence to prove that this does allow younger workers to progress the case may fail on its facts.

Croner advises to avoid the use of age either directly or indirectly in making employment decisions. If this cannot be done then sound objective reasons must be in place to prevent successful claims. Firms would not be well advised to implement compulsory retirement ages, but should manage older workers based on actual performance not assumptions based on age.

Howard Hymanson, head of employment group at Harbottle 27th April 2012 at 12:18 pm

While the decision in Seldon is neither surprising nor unexpected, it does serve as a useful reminder to employers of the need to carefully consider the justification for any mandatory retirement provisions and in particular focussing on justifying the particular age chosen.

It may not, for example, be appropriate for an employer to adopt a single retirement age across the entire workforce, particularly where there is a wide range of different jobs being undertaken and where there will (presumably) be different considerations to take into account.

It is clear that there is no quick fix for employers in deciding how to deal with an increasingly older workforce and, that the issue of justification where a set retirement age is imposed, will continue to be the subject matter of future litigation.

The Supreme Court decision should not be taken as carte blanche for employers to have a compulsory retirement age of 65.

Employers choosing to have a compulsory retirement age could be in for a shock once the tribunal hears the case as to whether or not 65 was an appropriate means of achieving each of the stated objectives of Seldon’s former firm.

The statistical analysis needed to show that 65 was more proportionate than, say, 66, 70 or 75 may be very onerous.

Following a detailed assessment of the ruling it seems the most important and tricky issue that employers need to grapple with when considering compulsory retirement remains unanswered.

The court clarified that if an employer wants to justify direct age discrimination (i.e. have a set retirement age) then ensuring its reasoning was founded on legitimate social policy aims, such as young workers having the opportunity to become a partner, facilitating succession planning and limiting the need to force older individuals out by reason of poor performance was crucial.

Although employers now have welcome confirmation of what could be legitimate aims for forced retirement, it will continue to be decided on a case-by-case basis what age is acceptable to use as a cut off to achieve these.

Inevitably, this remains a very difficult question for employers to answer. Not least because it will be difficult to prove why retiring someone at 65 is more or less likely to achieve any stated legitimate aims, as opposed to forcing them to go at 64, 66 or 67.

Consequently, unless an employer can come up with strong evidence to support why they have chosen a particular age for forced retirement, it is unlikely to satisfy the proportionate test. Indeed, unless there is some form of solid facts and figures to support a specific cut off age, such as health and safety research, the employer will be left severely exposed.

In my experience, most employers have struggled to find such evidence, especially in service-related or professional sectors.

It therefore appears that, despite this ruling, it will remain just as difficult for the majority of employers to compel someone to retire. Rather than paving the way for employers to justify a retirement age, I expect theverdict will prove to be of little advantage in practice.